LEGAL AND TAX CONSIDERATIONS FOR MIDSTREAM AND

DOWNSTREAM OIL AND GAS INVESTMENTS IN MYANMARE L E C T R I C I T Y A N D E N E R G Y E X H I B I T I O N , 2 4 J u n e 2 0 1 8

MARKET ACCESS LIBERALISATION

MIC NOTIFICATION 15/2017

� Increasing foreign investment is a national policy; in

comparison to many countries in the region, Myanmar’s

market is very open to foreign investment

� New Myanmar Investment Law (Pyidaungsu Hluttaw Law

No. 40/2016 dated 18 October 2016)

� Myanmar Investment Commission Notification No. 15/2017

dated 10 April 2017: “List of Restricted Investment

Activities”

� Removed joint-venture requirements in many areas

MIC NOTIFICATION 15/2017

� For oil and gas-related investments, the following

restrictions still apply:

Joint venture (maximum foreign ownership ratio: 80%) - no

change - required for:

� Manufacturing and domestic distribution of flammable � Manufacturing and domestic distribution of flammable

solid, liquid and gaseous fuels and aerosols (acetylene,

gasoline, propane, hairsprays, perfumes, deodorants,

insect spray

MIC NOTIFICATION 15/2017

� Approval from the Ministry of Electricity and Energy - MoEE

- (but no more joint venture with MoEE) required for:

� Construction and installation of all kinds of offshore

platforms; import, production, construction and

installation of equipment, accessories and parts therefor

� Import, export, transport, storage, distribution and sale

of oil, gas and petroleum products

MIC NOTIFICATION 15/2017

� Construction and operation of storage tanks, ports for

loading and unloading petroleum products and other

petroleum product-related facilities

� Construction and operation of new refineries; upgrading

and maintenance of existing refineries

� Exploration and interpretation of oil and gas by

geological and geochemical methods; import,

production, construction and installation of equipment,

accessories and parts therefor

MIC NOTIFICATION 15/2017

� Drilling, production and testing of oil and gas; import,

production, construction and installation of equipment,

accessories and parts therefor

� Transportation of, and construction of a pipeline

network for, oil and gas; import, production,

construction and installation of equipment, accessories construction and installation of equipment, accessories

and parts therefor

MINISTRY OF COMMERCE NOTIFICATION 25/2018

� With exceptions, administrative practice barred foreign

investors from operating wholesale and retail businesses

� Ministry of Commerce Notification 25/2018 dated 9 May

2018 opens market to foreign companies as follows:

� Wholesale: Minimum capital USD 5 mill. (USD 2 mill. for � Wholesale: Minimum capital USD 5 mill. (USD 2 mill. for

joint ventures with max. 80% foreign ownership)

� Retail: Minimum capital USD 3 mill. (USD 0.7 mill. for

joint ventures with max. 80% foreign ownership) +

minimum 929 square metres of sales area

MINISTRY OF COMMERCE NOTIFICATION 25/2018

� We think, however, that MoC Notification 25/2018 does not

apply to businesses that operate under specific permits:

� Consequently, an importer and distributor of petroleum

products with a license from the MoEE should not be

required to apply for a wholesale or retail permit from the

MoC and be subject to the minimum capital and floor space MoC and be subject to the minimum capital and floor space

requirements under MoC Notification 25/2018

� MoC 25/2018 may, however, be welcome news to foreign

distributors of equipment (e.g., cylinders, hard hats) whose

distribution does not require a license from MoEE

NEW COMPANIES LAW

� Myanmar Companies Law (Pyidaungsu Hluttaw Law No.

29/2017 dated 6 December 2017); will enter into force on 1

August 2018

� According to the new Companies Law, a company with up to

35% foreign ownership is not a “foreign company” and

should therefore be able to own real estate and freely should therefore be able to own real estate and freely

engage in trading, insurance and banking business

� Whether such a company will, however, really be treated as

a Myanmar company outside the Companies Law still

remains to be seen

INVESTMENT PROCEDURE

INVESTMENT PROCEDURE

1. Find land/premises, negotiate lease agreement

2. Apply for approval from MoEE (see MoEE’s “standard

criteria” published on 9 April 2018 on DICA’s homepage for

details)

3. Apply for MIC permit or endorsement (if long-term lease of 3. Apply for MIC permit or endorsement (if long-term lease of

immovable property is required and/or tax incentives are

sought)

4. Apply for construction permit and construct facility (if not

there yet)

INVESTMENT PROCEDURE

5. Apply for license from MoEE and other required licenses

(see Petroleum and Petroleum Products Law 2018 for what

ministries to turn to)

ENDORSEMENT OR PERMIT FROM THE

MYANMAR INVESTMENT COMMISSION

(MIC)(MIC)

MIC ENDORSEMENT OR PERMIT

� Foreign investors may not own land and other immovable

property. The Transfer of Immovable Property Restriction

Law of 1987 furthermore disallows in principle all leases of

immovable property to foreigners if the term exceeds one

year.

� Foreign investors requiring land for their investment (in � Foreign investors requiring land for their investment (in

order to, e.g., construct and operate LPG terminals, jetties,

storage tanks and warehouses) must obtain a (i) permit or

(ii) an endorsement from the Myanmar Investment

Commission (MIC).

MIC ENDORSEMENT OR PERMIT

� The MIC permit or endorsement entitles a foreign investor

to lease land or other immovable property for a term of up

to 50 years (two renewals for up to 10 years each are

possible)

� (If the land is located in an SEZ, an investment permit from

the SEZ Management Committee has to be sought instead; the SEZ Management Committee has to be sought instead;

max. initial lease term 50 years; one renewal for 25 years.)

� Furthermore, tax incentives are only available with an MIC

permit or endorsement (or an investment permit from an

SEZ Management Committee)

MIC ENDORSEMENT OR PERMIT

� Difference between “permit” and “endorsement”: An

endorsement (introduced by the 2016 Myanmar Investment

Law) entails a simpler procedure; available for smaller

investments that do not require an environmental impact

assessment or involve the use of state-owned land

MOEE’S “STANDARD CRITERIA”

MOEE’S “STANDARD CRITERIA”

� Published on the homepage of the Directorate of

Investment and Company Administration (DICA)

� Based on section (d), sub-section (6) of MIC Notification

15/2017

� Contain a list of documents and information that have to � Contain a list of documents and information that have to

be submitted when applying for MoEE approval for the

following oil and gas investments:

� Installation of offshore supply bases

MOEE’S “STANDARD CRITERIA”

� Import, storage and distribution of LPG

� Construction and operation of refineries, LPG plants,

fertiliser plants and petrochemical plants

� Exploration of oil and natural gas

� Installation and operation of pipelines for oil and

natural gas

� Import and installation of oilfield testing equipment

PETROLEUM AND PETROLEUM PRODUCTS

LAW

PETROLEUM AND PETROLEUM PRODUCTS LAW

� According to the Petroleum and Petroleum Products Law

(Pyidaungsu Hluttaw Law No. 20/2017 dated 1 August

2017), the following ministries are in charge of the sector:

� MoEE: Licenses for “the refinery, transit,

transportation with pipelines, distribution, testing,

and analysing”and analysing”

� Ministry of Commerce: Import and export licenses

� Ministry of Transport and Communications: Licenses

for motor vehicles, watercraft and barges for the

carriage of petroleum and petroleum products

PETROLEUM AND PETROLEUM PRODUCTS LAW

� Ministry of Natural Resources and Environmental

Conservation (Department of Mines): Storage licenses

for warehouses and storage tanks; transportation

permits for motor vehicles, watercraft and barges for

the transportation of petroleum and petroleum

products

� Petroleum and Petroleum Products Rules currently being

drafted (will in particular contain the license types,

requirements for application, authority of the ministries

involved, duties and obligations of the licensees, rules for

LPG, LNG and CNG business)

TAX CONSIDERATIONS

TAXES

� Corporate income tax: 25% of the annual income as shown

in the annual audited financial statements (accounting

standard: IFRS)

� Withholding tax on service fees paid to a destination abroad

(2.5%), royalties, interest (but no withholding tax on

dividends)dividends)

� Salary income is taxed at a progressive rate from 0% to 25%

� Capital gains tax: 10% on the capital gain (40-50% if shares

in an oil or gas field are sold)

TAXES

� Commercial tax (similar to VAT): 5% on the landed costs if

goods are imported, on the sales price of goods sold, on

service fees (transport services are exempt with the

exception of transport by pipeline) and on the sales price of

exported crude oil; offset of input with output tax possible

� Special goods tax (offset of input with output tax possible)� Special goods tax (offset of input with output tax possible)

� Kerosene, petrol, diesel and aviation jet fuel: 5% on the

landed costs if imported; 5% on the sales price if sold in

the country

� Natural gas: 8% on the landed costs if imported; 8% on

the sales price if sold domestically or exported

TAXES

� Customs duty

� Stamp duty

TAX INCENTIVES

� Tax incentives at the discretion of the MIC in particular:

� Exemption from corporate income tax for 3, 5 or 7 years

(depending on the location) if investment is made in a

“promoted sector” (MIC Notification No. 13/2017) -

production of petroleum chemical products, of engine oil;

cargo transport on inland waterways; construction and cargo transport on inland waterways; construction and

leasing warehouses, silos and tanks; packing goods

� Exemption from customs duty and commercial tax at the

import stage for the import of machinery, equipment and

construction material during the construction period

TAX INCENTIVES

� Tax incentives in an SEZ:

� Difference between “free zones” (production for export)

and “promotion zones” (all other businesses)

� Free zone: Exemption from corporate income tax for 7

years, 50% reduction for the following 5 years, 50% years, 50% reduction for the following 5 years, 50%

reduction for another 5 years if profits are reinvested;

no commercial tax and customs duty on the import of

capital goods and raw materials; no commercial tax on

the land lease (Thilawa)

TAX INCENTIVES

� Promotion zone: Exemption from corporate income tax

for 5 years, 50% reduction for the following 5 years, 50%

reduction for another 5 years if profits are reinvested;

exemption from commercial tax and customs duty on

the import of capital goods for 5 years and 50%

reduction for the following 5 years

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